In the upcoming monetary policy meeting on June 19, 2025, the Swiss National Bank (SNB) is facing significant scrutiny regarding its potential interest rate decisions. As analysts and economists speculate about the possibility of reducing the current benchmark rate of 0.25% to zero and potentially delving into negative territory, prominent voices are emerging in opposition to this path. Among them is Martin C. Janssen, an emeritus finance professor known for his extensive academic career and insights into Switzerland’s economic policies. In a recent commentary published on finews.ch, Janssen articulates a case against further rate cuts, arguing that an increase in interest rates may be the more prudent action for Switzerland’s economy.
The expectations surrounding the SNB’s decision are varied, with many financial experts suggesting that a rate cut could stimulate sluggish economic growth. However, Janssen presents a contrasting viewpoint, asserting that lowering the interest rate would not only fail to address existing economic challenges but also exacerbate them in several critical areas.
Janssen posits that the marginal productivity of capital in Switzerland is currently assessed to be between 2% and 3% per annum. He warns that reducing the interest rate to zero would further incentivize businesses, particularly those struggling to achieve a 3% return, to rely on state support rather than pursuing sustainable growth strategies. This could lead to the development of “zombie” firms—companies that survive on government assistance without contributing meaningfully to the economy. Such firms can drain resources away from more viable entities, impeding overall economic progress in Switzerland.
Moreover, Janssen underscores the political implications of a prolonged weak Swiss franc. He contends that the SNB’s interventions to weaken the currency have resulted in an inflated foreign exchange reserve, increasing Switzerland’s economic reliance on the European Union. In a crisis, this dependency could limit the SNB’s flexibility to act independently; selling European bonds, for instance, might provoke diplomatic tensions with EU authorities, potentially forcing the bank to align its monetary policy with EU interests.
The discussion extends to the broader implications of a devalued franc, which Janssen argues has resulted in a concerning redistribution of wealth. A weaker currency effectively transfers income from Swiss households to foreign owners of exporting companies, leading to a significant erosion of household purchasing power. He estimates that a discrepancy in the weighted foreign currency of 5 percentage points could translate to over 1% of available income being redistributed from the general population to corporate owners, many of whom are based outside Switzerland.
Janssen also highlights the demographic and labor market challenges exacerbated by the SNB’s policies. He suggests that the central bank’s insistence on maintaining low rates has been a driving force behind the influx of foreign firms and labor into Switzerland. This trend has complicated efforts to achieve real per capita income growth and has contributed to labor shortages, particularly in skilled sectors. He argues that the issues surrounding skilled labor supply are critical and will only worsen if companies continue to depend on governmental support rather than fostering growth through investment and development.
Turning to the current inflation landscape, Janssen points out that while imported inflation may be projected at -2.5% per annum—largely due to falling oil prices—the domestic inflation rate could rest at around 1%. If inflation were measured more comprehensively, considering stagnation effects and other factors, it could be argued that the true rate is closer to 3% or 4%. This discrepancy calls into question the appropriateness of the SNB’s existing loose monetary policy, which may not adequately reflect the actual economic conditions facing Switzerland.
The implications of sustained low and negative interest rates for Swiss pension funds cannot be overlooked. Following years of persistently low yields, pension funds find themselves in a quandary, struggling to secure sufficient returns to meet their obligations. This reality poses a significant challenge for retirement planning, leading to concerns about the long-term viability of pension schemes under current fiscal policies.
Janssen concludes that a re-evaluation of the current monetary policy framework is essential. He expresses a belief that if imported inflation were to stabilize at around -4% with domestic inflation remaining in the 1% to 2% range, it could provide a more favorable economic environment. Such conditions would not only alleviate fears of deflation, contrary to the SNB’s assertions, but would also improve stability for the Swiss economy in the short and long term. Moreover, he suggests that these steps could effectively shield Switzerland from accusations of currency manipulation from the United States.
Having taught economics and finance for over five decades in prestigious institutions such as the University of Zurich and the University of St. Gallen, Janssen’s perspectives carry significant weight in the ongoing debate surrounding the SNB’s monetary strategy. Since his retirement in 2013, he has continued contributing to economic discussions, most notably through his consultancy firm Ecofin, which he founded in 1986. As Switzerland navigates these complex economic waters, the impending SNB decision could have far-reaching implications, not just for the immediate financial landscape, but for the country’s economic stability and growth trajectory in the years to come.